Top Bear Market Investment: Associated British Foods plc (LON:ABF)

Associated British Foods plc is a financially healthy and robust stock with a proven track record of outperformance. We all know Associated British Foods, and having this large-cap to cushion your portfolio during a volatile period in the stock market isn’t a bad idea. Today I will give a high-level overview of the stock, and why I believe it’s still attractive.

See our latest analysis for Associated British Foods

Associated British Foods plc operates as a diversified food, ingredients, and retail company worldwide. Established in 1935, and led by CEO George Weston, the company currently employs 137.00k people and with the company’s market cap sitting at UK£19b, it falls under the large-cap stocks category. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.

LSE:ABF Historical Debt January 27th 19
LSE:ABF Historical Debt January 27th 19

Associated British Foods currently has UK£778m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With an interest coverage ratio of 36.77x, Associated British Foods produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its cash flows from operations copiously covers it debt by 184%, above the safe minimum of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means ABF is financially robust in the face of a volatile market.

LSE:ABF Income Statement Export January 27th 19
LSE:ABF Income Statement Export January 27th 19

ABF’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 14%, outpacing the industry growth rate of 6.2%. It has also returned an ROE of 11% recently, above the industry return of 11%. Characteristics I value in a long term investment are proven in Associated British Foods, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Associated British Foods makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Associated British Foods? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
  1. Future Outlook: What are well-informed industry analysts predicting for ABF’s future growth? Take a look at our free research report of analyst consensus for ABF’s outlook.
  2. Valuation: What is ABF worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ABF is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.